On Thursday, January 23, 2014, the Commodity Futures Trading Commission (CFTC) certified a second available to trade determination (the Second MAT Determination) in response to an application submitted by trueEX, LLC.1 The majority of the interest rate swaps certified under the Second MAT Determination were included in the CFTC’s first available to trade determination, which was issued on January 16, 2013, in response to an application submitted by Javelin SEF, LLC (the First MAT Determination).2 However, the Second MAT Determination includes U.S. Dollar International Monetary Market (IMM) starting swaps with a standard coupon3 of various tenors. The additional interest rate swaps certified under the Second MAT Determination must be executed on a SEF or DCM that lists those products beginning on February 21, 2014.4

The table below identifies the interest rate swaps that must be executed on a SEF or a DCM beginning in February, pursuant to the First MAT Determination and the Second MAT Determination. The interest rate swaps added by the Second MAT Determination appear in bold in the blue column below.

Approved MAT Determinations for Certain Interest Rate Swaps

Specification

Fixed-to-Floating Interest Rate Swaps

Currency

U.S. Dollar (USD)

U.S. Dollar (USD)

U.S. Dollar (USD)

Euro (EUR)

Floating Rate Indexes

USD LIBOR

USD LIBOR

USD LIBOR

EURIBOR

Trade Start Type

Spot Starting (T+2)

IMM Start Date (next two IMM dates)

IMM Start Date (next two IMM dates)

Spot Starting (T+2)

Optionality

No

No

No

No

Fixed Leg:

Payment Frequency

Semi-Annual, Annual

Semi-Annual, Annual

Semi-Annual

Semi-Annual, Annual

Day Count Convention

30/360, Actual/360

30/360, Actual/360

30/360

30/360, Actual/360

Floating Leg:

Reset Frequency

Quarterly (3 Month), Semi-Annual

Quarterly (3 Month), Semi-Annual

Quarterly (3 Month)

Quarterly (3 Month), Semi-Annual

Day Count Convention

Actual/360

Actual/360

Actual/360

Actual/360

Dual Currencies

No

No

No

No

Notional

Fixed Notional

Fixed Notional

Fixed Notional

Fixed Notional

Fixed Rate

Par

Par

Standard Coupon

Par

Tenors

2, 3, 5, 7, 10, 12, 15, 20, 30 years

2, 3, 5, 7, 10, 12, 15, 20, 30 years

1, 2, 3, 5, 7, 10, 15, 20, 30 years

2, 3, 5, 7, 10, 15, 20, 30 years

Compliance Date

February 15, 2014

February 15, 2014

February 21, 2014

February 15, 2014

In the interim, market participants should be taking steps to prepare to use SEFs or DCMs to the extent that they engage in the interest rate swap transactions that are covered by the First MAT Determination or the Second MAT Determination. Such steps may include:

SEF Onboarding. A market participant must identify and prepare to onboard with SEFs that offer the interest rate swaps that are listed in the table above. The onboarding process for SEFs requires a great deal of due diligence including, among other things, reviewing a SEF’s rulebooks and signing a participant agreement with a SEF. Market participants should be aware that in most cases, by executing a relatively short SEF participant agreement, they will be subject to typically lengthy SEF rules that vary from SEF to SEF. Below is a list of provisionally registered SEFs that plan to offer, or are offering, certain interest rate swaps:

BGC Derivatives Markets, L.P.;

Bloomberg SEF, LLC;

DW SEF, LLC;

GFI Swaps Exchange, LLC;

ICAP SEF US, LLC;

Javelin SEF, LLC;

LatAm SEF, LLC;

SwapEx, LLC;

TeraExchange, LLC;

tpSEF Inc.;

Tradition SEF, Inc.;

trueEX, LLC; and

TW SEF, LLC.

Ensure Operational Preparedness. Market participants should begin to develop and put in place the required personnel, policies and procedures for successful execution of interest rate swaps on a SEF or a DCM.

Stay Tuned. The CFTC is expected to certify additional made available to trade determinations in the coming days. The timing for these certifications will depend on when individual SEFs submitted applications to the CFTC for a made available to trade determination. Sutherland has prepared a comparison chart that estimates when such certifications will be issued, which is available here. In addition, the CFTC’s Technology Advisory Committee (TAC) is scheduled to meet on February 10, 2014. The TAC is expected to address SEFs and certain other topics. An agenda for the meeting is available on the CFTC’s website.

1 As market participants are aware, certain swaps that are subject to mandatory clearing must be executed on a registered swap execution facility (SEF) or designated contract market (DCM) (i.e., an exchange) once such swaps are designated as “available to trade.” CFTC regulations set forth a detailed process for swaps to be designated as available to trade. For additional information, please see Sutherland’s July 3, 2013 Legal Alert. 2 For additional information on the First MAT Determination, please see Sutherland’s January 16, 2014 Legal Alert.3 “Standard coupon” refers to the then-current fixed coupon rates for Market Agreed Coupon contracts.4 Please note that the Second MAT Determination does not extend the February 15, 2014 compliance date for mandatory SEF or DCM execution of swaps covered by the First MAT Determination.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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